Sherwin-Williams Shares Attractive After 6% Post-Earnings Dip, Says Baird

Given Baird's view that Sherwin-Williams Co SHW 1.16% is fundamentally sound, with considerable momentum into the second half of 2016 and the year 2017, it views the recent 6 percent dip in the shares of the company after the release of its second-quarter results as creating an attractive entry point.

The firm sees upside beyond its $330 price target, as several dimensions unfold favorably over the next two to three years. Baird analyst Ghansham Panjabi believes the pending The Valspar Corp VAL 0.34% deal is financially and strategically attractive.

The firm attributed the pullback in the shares of Sherwin-Williams to inflated expectations and the second-quarter earnings miss. Nevertheless, Baird noted that the end markets of the company remain healthy. Specifically, the brokerage noted the healthy 5.2 percent same sales growth at its paint stores group segment, which reflects the robustness of the U.S. construction market.

Panjabi said, "Further, we attribute part of the peer group outperformance towards shrinking channel demand within the independent dealer network segment of the market."

Related Link: Morgan Stanley: Same-Store Sales, Lower Cost Of Goods Sold Lining Sherwin-Williams Up For Outperformance

The analyst also sees weakness in some segments, including the consumer segment, which is facing increased competition and customer inventory reductions in Latin America. However, Baird believes Sherwin-Williams would continue to do well in terms of volumes, given favorable end market/geographic weighting.

Even as Baird believes the regulatory overhang related to its pending acquisition of Valspar will determine the likelihood of shares seeing further upside from its $330 price target, it maintains its rating for the shares of Sherwin-Williams at Outperform.

Shares of the company were seen up 1.10 percent at $293.83 at time of writing.

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